Week in Review

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Week in Review

03/11/2023

For the week 3/6-3/10

[Posted 6:00 PM ET, Friday]

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Edition 1,247

I get into the details of the banking crisis caused by the collapse of Silicon Valley Bank (SVB, symbol SIVB), the preferred banking partner of the venture and startup worlds, the 15th largest in the U.S., down below, but when the bank first announced Wednesday it was taking a $1.8 billion loss while liquidating its entire short-term securities book and raising $2.25 billion in fresh capital, unless you were plugged in, you didn’t know that the capital raise wasn’t necessarily lined up.

CEO Greg Becker, in a letter to investors that day, assured them the bank had “ample liquidity,” and said it took these actions “because we expect continued higher interest rates, pressured public and private markets, and elevated cash burn levels from our clients as they invest in their businesses.”

Thursday, Becker told investors on a call, “I would ask everyone to stay calm and to support us just like we supported you during the challenging times.”

Of course, at that everyone panicked, and Friday regulators swooped in.

Earlier Wednesday, Silvergate Capital, which had become one of the crypto industry’s biggest banking partners, announced it was liquidating and winding down operations after suffering significant deposit outflows from its digital asset clients.

This is going to be a long weekend and I have zero idea what Monday will bring.  Will the Federal Reserve come to the rescue and say it won’t be raising interest rates at its upcoming meeting?  Some kind of statement could come Sunday evening, for example.  [I don’t believe this will be the case.]

For now, the following column was largely written before the SVB issue.  It’s going to take a while to sort everything out and discover what, if any, systemic risks there are.

But I can’t help but close this segment by saying I wrote weeks and weeks ago how I was bemused at how the stock market, as it was getting off to its roaring start to 2023, was ignoring the rising cost of capital, which was going to impact earnings, for starters.  I have to admit, though, I wasn’t necessarily thinking about the paper losses in the banks’ bond portfolios, which aren’t a huge issue, certainly not a systemic one, unless you have a situation like with SVB where suddenly everyone is trying to pull their money out. 

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Meanwhile, China’s annual gathering of Communist Party members and political leaders resulted in nonstop bashing of the U.S., as described below.  I wrote last week that “Americans can’t be surprised over any backlash,” after a concerted effort from both sides of the political aisle in Washington to take China down a peg or two.

The risks of a military conflict, or ‘accident,’ are growing. 

Monday, JPMorgan Chase CEO Jamie Dimon, in an interview with Bloomberg, said the war in Ukraine and relationship with China are among his top concerns with regards to the economy.

“The thing I worry the most about is Ukraine.  It’s oil, gas, the leadership of the world, and our relationship with China – that is much more serious than the economic vibrations that we all have to deal with on a day-to-day basis.”

This is what Week in Review has been all about for 24 years, Charlie Brown.

This Week in Ukraine….

--As of the weekend, it was clear Russian forces were attacking Bakhmut from three sides, and as I noted last week, some Ukrainian elements have begun withdrawing, destroying “several bridges” in the process, according to the British military and the UK’s Telegraph.  The idea behind dropping the bridges would seem to be “that even if Ukrainian troops begin to withdraw (from Bakhmut), Russian forces would not necessarily be able to rapidly take the entire city,” the Institute for the Study of War (ISW) predicted.

Volodymyr Nazarenko, a commander of Ukrainian troops in Bakhmut, said that there had been no order to retreat and “the defense is holding” in grim conditions.

“The situation in Bakhmut and around it is very much hell-like, as it is on the entire eastern front,” Nazarenko said in a video posted on Telegram.

Pentagon chief Lloyd Austin said Monday during a visit to Jordan: “The fall of Bakhmut won’t necessarily mean that the Russians have changed the tide of this fight.  It think it is more of a symbolic value than it is strategic and operational value,” he said, and added, “If the Ukrainians decide to reposition in some of that terrain that’s west of Bakhmut, I would not view that as an operational or strategic setback.”

The ISW said in a report over the weekend that should Russian forces take Bakhmut, “they could then attempt renewed pushes towards one or both of Kostyantynivka or Slovyansk but would struggle with endemic personnel and equipment constraints.”

Other Western officials say that even if Bakhmut falls, Moscow will have gained little.  They also estimate between 20,000 and 30,000 Russian troops have been killed and wounded in the battle.* The Wall Street Journal’s Yaroslav Trofimov reported on Sunday that “wave after wave of near-suicidal assaults” from Wagner group’s “disposable penal battalions” has led to Russia’s gains.

*White House spokesman John Kirby said Wagner had suffered significant losses in recent weeks, with about 9,000 fighters killed in action.

For Ukraine, one official said, the battle has been “a unique opportunity to kill a lot of Russians.”

Ukraine has paid a heavy price as well.  Russian Defense Minister Sergei Shoigu said on Telegram that Ukraine had lost 11,000 troops in February alone.

“The Kyiv regime’s indifference towards its own people is astonishing,” Shoigu claimed, in an attempt to flip the script on Ukraine’s criticism of Moscow’s own human-wave tactics.

Western officials say they “don’t recognize Shoigu’s figures.

By contrast, the Wagner mercenary group is running short of manpower, equipment and ammunition.

Wagner’s boss Yevgeny Prigozhin accused the Russian military of failing to supply the ammunition Wagner needs to take the city.  Prigozhin argued this was the result of “ordinary bureaucracy or a betrayal.”  He also said his representative had been denied access to the headquarters of Russia’s military command in Ukraine, in a further deepening of his rift with the defense establishment.

“If Wagner retreats from Bakhmut now, the whole front will collapse,” Prigozhin said in a video.  [One of his critics said the video, not on his usual Telegram channel, was two weeks old.]

There is hope in the West that Ukraine has wrecked Moscow’s chances of making any further meaningful headway in the near future.

Shoigu said the “liberation of Artyomovsk (the Russian name for Bakhmut) continues.”

“The city is an important defensive hub for Ukrainian forces in the Donbas,” he said.  “Taking control of it will allow…further offensive actions into the Ukrainian military’s defensive lines.”

The Institute for the Study of War said maps showed as of Monday that Russian forces have taken 40 percent of Bakhmut after a nine-month campaign.

It would seem that with the ongoing arrival of fresh batches of Western military equipment, including tanks and armored vehicles, that Ukraine’s counteroffensive could come by May.

On Monday, President Zelensky promised in his evening address that the defense of Bakhmut will continue.  He said he asked his top two generals if they recommend a tactical withdrawal from Bakhmut or to stay and defend the city.  “Both generals replied: do not withdraw and reinforce; and this opinion was unanimously backed by the [military command] staff.”  And so Zelensky said he ordered reinforcements sent to the city.

“We are defending and will continue to defend every part of Ukraine,” the president said.  “When the time comes, we will liberate every city and village of our country, and we will hold the occupier accountable for every shot against Ukraine, for every meanness against Ukrainians,” he promised.

--While the focus the past few weeks has been on Bakhmut, Ukraine urged residents of Kherson to evacuate amid renewed Russian attacks in the southern city that was retaken by Kyiv’s troops last fall.

Russia fired 360 missiles, including mortars and multiple-launch rocket systems at the Kherson region on Monday, authorities said.  Paramedics and police can no longer help many victims of shelling because they are coming under fire themselves, the Kherson city council said.

Kherson had a prewar population of 330,000, now down to around 50,000, and it is being shelled by a large contingent of Russian forces positioned across the Dnipro River since returning to Ukrainian hands in November.

--On Tuesday, Ukraine’s military identified a soldier who it said was executed by “Russian invaders” in a video spread on social media, hailing Tymofiy Shadura as a hero whose death would be avenged.

Shadura had been missing since Feb. 3 after hostilities around Bakhmut. The 12-second video shows an apparently unarmed man in a uniform with a Ukrainian flag insignia on his arm standing and smoking a cigarette in a wooded area. The man says “Slava Ukraini!” – or Glory to Ukraine – before multiple shots are heard coming from an unseen shooter or shooters.  The man slumps to the ground as bullets appear to hit his body.  A voice is heard saying “Die, bitch” in Russian.

President Zelensky said the video showed Russian occupiers killing a soldier, and the man was quickly hailed by Ukrainians as a hero across social media, where many users posted “Heroyam Slava”  - Glory to the Heroes – in response.  His brigade posted on Facebook: “The command of the 30th separate mechanized brigade and the Hero’s brothers express their sincere condolences to his relatives and friends.  Revenge for our Hero will be inevitable. Glory to Ukraine!  Glory to heroes!” it said.

Yet another war crime.

--Wednesday, Director of National Intelligence Avril Haines told the Senate Intelligence Committee: “The Russians are making incremental progress in Bakhmut, which is not a particularly strategic objective, but are otherwise facing considerable constraints, including personnel and ammunition shortages.

“In short, we do not foresee the Russian military recovering enough this year to make major territorial gains.”  However, Haines added, “Putin most likely calculates that time works in his favor, and prolonging the war, including with potential pauses in the fighting, may be his best remaining pathway to eventually securing Russian strategic interests in Ukraine, even if it takes years.”

--Early Thursday, Russia launched its first huge wave of missile strikes across Ukraine since mid-February, killing at least 11 civilians, including five in western Lviv, and forcing the Zaporizhzhia nuclear plant to operate on diesel fuel.  Kyiv’s military said it was able to shoot down 34 out of 81 various missiles, which targeted the electricity grid and knocked out power for more than 150,000 people across the northwest and the southern Odesa region, and initially, to at least 80% in Kyiv.

The barrage included 54 air- and sea-based cruise missiles and six hypersonic cruise missiles, along with anti-aircraft guided missiles and eight Iranian drones.

What’s a little disturbing is that the percentage of missiles and drones being shot down isn’t what it used to be.

Ukraine said Russia is running out of artillery shells, claiming key warehouses in central Russia are now almost entirely bare, and warehouse stocks elsewhere are being emptied and routed to the front lines.  They also allege “improper storage and violation of service rules and regulations” have led to “visible signs of rust damage” on about half of Russia’s existing artillery stockpiles. As a result, Ukrainian officials say they’re expecting a noticeable “shortage in the artillery units of the Russian army within the next 2-3 months.”

*While the Ukrainian assessment on artillery shells may be accurate, I have to note here that many of the key Ukrainian military figures talked of Russia running out of missiles basically long ago.  If I had the time, I could show you reports like in October and November that said Russia had enough capacity for maybe two more massive missile strikes, and yet we saw what occurred Thursday.  So frankly I’m taking a lot of the reports from Ukraine more with a grain of salt than before.

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--New intelligence reviewed by U.S. officials suggest that a pro-Ukrainian group carried out the attack on the Nord Stream pipelines last year, the New York Times reported on Tuesday.  There was no evidence that President Zelensky or his top lieutenants in Ukraine were involved in the operation, or that the perpetrators were acting at the direction of any Ukrainian government officials, the newspaper reported, citing U.S. officials.

The German government on Tuesday said it had taken note of a Times report but its own investigation has not yet reached results.  Sweden, Denmark and Germany informed the UN Security Council a few days ago that investigations are ongoing and that there are still no results, a spokesperson for the Chancellery said.  Germany’s public prosecutor is leading the investigation.

The United States and NATO have called the September 2022 attacks on the pipelines that spewed gas into the Baltic Sea “an act of sabotage,” while Moscow has blamed the West.  Neither side has provided evidence.  Built by Russia’s state-controlled Gazprom, the Nord Stream gas pipelines connect Russia and Germany.

The intelligence review suggests those who carried out the attacks opposed President Putin “but does not specify the members of the group, or who directed or paid for the operation,” the Times wrote.  “U.S. officials declined to disclose the nature of the intelligence, how it was obtained or any details of the strength of the evidence it contains.  They have said that there are no firm conclusions about it,” it added, citing the unnamed officials.  “U.S. officials said no American or British nationals were involved.”

Russia’s deputy UN envoy said the Times report “only proves that our initiative on launching an international investigation under the auspices of the UN Secretary-General is very timely.”

--A Kazakh journalist, Azamat Maytanov, reported that Ramzan Kadyrov, the warlord leader of Chechnya and one of Putin’s main cronies, is reportedly gravely ill with kidney problems.

Kadyrov brought the UAE’s chief nephrologist, or kidney specialist, to Grozny, Chechnya’s capital, for treatment.

Kadyrov opted for a doctor from outside the region over concerns that he was poisoned and therefore does not trust Moscow doctors.

--House Speaker Kevin McCarthy said he has no plans to visit Ukraine after President Zelensky extended an invitation.  In an interview with CNN, Zelensky asked McCarthy to see the situation firsthand.

“Mr. McCarthy, he has to come here to see how we work, what’s happening here… Then after that, make your assumptions,” Zelensky.

Asked about the invitation, McCarthy told CNN he did not need to travel to the country and would get information in other ways.

McCarthy’s position has been that he backs Ukraine but that House Republicans will not provide “a blank check,” which is so lame, a classic strawman. 

Opinion….

Editorial / The Economist

“Ammunition remains a serious problem (for Ukraine), because Western allies have been slow to ramp up production. And Ukraine’s lack of air power may become a bigger issue if Russian warplanes prove willing to run bigger risks during any Ukrainian offensive.

“On the other hand, Russia’s army is in dire shape, if, after conquering Bakhmut, it decides to plough on deeper into Donetsk, it will have to further run down its own meager reserves. It might eventually start pulling units from other parts of the long front line, creating gaps that Ukraine can exploit, suggests Gustav Gressel of the European Council on Foreign Relations, a think-tank. Ukraine’s allies are watching closely for weak points.

“On March 2nd, Mark Milley, America’s top general, visited tabletop wargames held by America at a base in Wiesbaden, Germany, to help Ukrainian officers consider different options for an offensive.  Few think that Ukraine can restore its pre-war boundaries at a single stroke, let alone take back territory, including Crimea, seized by Russia in 2014. But if Ukraine can tear another significant chunk out of the Russian occupation, as it did last year in the northeast around Kharkiv, and in the south around Kherson, it would quash the belief – expressed by General Milley, among others – that the war is doomed to stalemate.”

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Wall Street and the Economy

Appearing before the Senate banking committee Tuesday, Federal Reserve Chair Jerome Powell said the central bank is likely to raise its benchmark funds rate higher than anticipated and could resume larger hikes after slowing the pace in recent months.

“As I mentioned, the latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” Powell said in his prepared testimony.

He added, “If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.”

Once a peak rate is reached, he said, the Fed will likely “maintain a restrictive stance of monetary policy for some time,” clearly signaling that if you are looking for rate cuts in 2023, you are sadly mistaken.

“Although inflation has been moderating in recent months, the process of getting inflation back down to 2% has a long way to go and is likely to be bumpy.”

“Restoring price stability is essential to set the stage for achieving maximum employment and stable prices over the longer run,” Powell said.  “The historical record cautions strongly against prematurely loosening policy.  We will stay the course until the job is done.”

The Fed, after raising the funds rate by 4 ½ percentage points the past year, reduced the size of its rate increases to a half-point in December and a quarter point in February after four straight three-quarter point bumps.

But the blockbuster January jobs report, followed by worse than expected reports on consumer and producer prices, as well as a strong retail sales report, put everyone back on edge as economists revised their forecasts for future rate hikes to not just further increases at the March 21-22, and May 2-3 meetings, but also at the June 13-14 confab.  And many began thinking Chair Powell and Co. would have to hike 50 basis points at one of the meetings if the data stayed strong.

Powell said, “Inflationary pressures are running higher-than-expected at the time of our previous meeting (Jan. 31-Feb. 1).”

At that time Fed officials forecast the funds rate would rise from a band of 4.50% to 4.75%, to a 5% to 5.25% band and then the Fed would pause, which the stock market welcomed.

But with the recent data, forecasts are being ratcheted higher, at least to a range of 5.25% to 5.5%, which would be three more 25 basis point hikes.

Powell reiterated his view that while goods inflation has fallen as supply chain troubles have eased, and rents were softening, increases for services, ex-housing – which accounts for like 56% of underlying consumer spending – have shown few signs of easing.  The key there is worker wage increases.

When Powell spoke at his Feb. 1 news conference, he said the word “disinflation” something like eleven times, but Tuesday he mentioned it only once.

Importantly, Powell also said Tuesday that the central bank would not consider changing its 2% inflation target, and that the “globally agreed” standard adhered to by many other central banks is an effective tool in helping anchor the public’s expectations for where inflation ought to be.  “We think it’s really important to stick to it.”

In his second day of testimony, Wednesday, this time with the House, Powell said no decision had yet been made on the size of March’s interest-rate hike.

I still don’t see the Fed hiking 50 basis points, so I’m sticking with 25.  [But we’ll see what the impact of Silicon Valley Bank’s collapse is on Fed thinking.]

As the Wall Street Journal opined:

“Monetary policy works with long and variable lags, as the saying goes, and critics will no doubt blame Mr. Powell if the Fed fails to stick a soft landing like Simone Biles.  But team transitory was wrong that inflation wouldn’t persist, and it may be wrong now in declaring that it’s been vanquished.  Mr. Powell’s job is to keep going until the inflation beast is dead for sure, and right now it doesn’t even look mostly dead.”

One more on the topic.  San Francisco Federal Reserve Bank President Mary Daly last weekend sounded a clear warning.  “In order to put this episode of high inflation behind us, further policy tightening, maintained for a longer time, will likely be necessary.”

Coming from Daly, whose views are typically in line with Fed leadership, the remarks were significant, and then backed up by Powell days later.

But back to “long and variable” lags, then we had the crisis with Silicon Valley Bank, discussed below.

We also had a jobs report today for the month of February, and once again it was greater than expected, an increase of 311,000 vs. a call for 220,000, the unemployment rate up to 3.6% from 3.4% (more Americans began searching for work and not all of them found jobs).  February’s total of 517,000 was revised down just 13,000 to 504,000.

The important figure with this report in terms of the Fed was average hourly earnings, up a less than expected 0.2%, and 4.6% year-over-year, though the latter figure was still up from January’s unrevised 4.4%.

But next week, aside from SVB, it’s all about the consumer and producer price data.

Separately, the latest Atlanta Fed’s GDPNow barometer for first-quarter growth stands at 2.6%.

Freddie Mac’s 30-year fixed-rate mortgage is at 6.73%, up from last week’s 6.65%.  But with the end of week flight to safety, the key 10-year Treasury yield has plummeted, to the benefit of mortgage rates.

Europe and Asia

Eurostat reported that GDP in the fourth quarter for the eurozone was unchanged compared with the previous quarter, worse than the preliminary estimate for a 0.1% advance.

While household spending and investment declined, government spending and trade helped offset the drops. Germany’s economy, the continent’s largest, shrank by 0.4%.

While gloomier than thought, stagnation means the bloc may still manage to narrowly dodge a recession that was seen as unavoidable after Russia invaded Ukraine.  Looking ahead, analysts predict a downturn in the first quarter as the rising cost of living continues to weigh on consumers, but the PMI data shows any decline will be slight.

Nonetheless, the European Central Bank is set to hike borrowing costs further when it meets next week.

Separately, retail trade in the eurozone rose 0.3% in January over December, but was down 2.3% year-over-year.

France: More than a million workers across France walked off the job and took to the streets Tuesday, kicking off what unions are touting as an open-ended standoff with President Emmanuel Macron over his plans to raise the retirement age from 62 to 64 by 2030, the centerpiece of his plan to revamp the country’s pension system.   He has argued that it is the only way to preserve benefits without raising taxes or increasing the country’s debt.

Teachers, train drivers, nurses, oil-refinery staff and other workers marched in demonstrations from Paris to Marseille.  Trains to Germany and Spain came to a halt, and those to and from the UK were reduced by a third. Hundreds of domestic and international flights were canceled.

The strikes continued Wednesday and Thursday, with train and air traffic disrupted and garbage collection in cites, including Paris, patchy.

Opinion polls show a majority of voters oppose Macron’s plan.  He is hoping the legislature approves the new pension law before April.  And Thursday, the Senate did vote to raise the retirement age by a 201-115 margin but debate then continued on a controversial amendment and the Senate is rushing to meet a deadline of midnight Sunday to finalize the legislation.

Turning to Asia…China reports much of its key data for January and February combined, due to the changing date of the Lunar New Year holiday in that time period, and exports for the two months fell 6.8%, an improvement over December’s 10.1% decline and compared with a market consensus of a 9.4% drop.  Exports were still down for a fourth consecutive period amid continued weakness in foreign demand, which added to government concerns about a global slowdown weighing on the country’s recovery.

Exports to the U.S. tumbled 21.8%, while those to the EU and Japan fell 12.3% and 1.6%, respectively.  Sales to Russia rose 19.8%.

Imports to China tumbled 10.2% from a year earlier, compared with a consensus of a 5.5% fall and after a 7.5% decline in December.  Imports from the U.S. fell 5%.  Arrivals from Russia, primarily oil and gas, jumped 31.3%.

February inflation came in at 1%, down from a prior 2.1% and the smallest rise in a year.  Producer prices fell 1.4% vs. -0.8% in January.  The fall in CPI was caused by weak consumer demand and a decline in commodity prices.  China’s target for inflation for the year is 3%.

Japan’s economy was unchanged for the fourth quarter over the third, and up an annualized 0.1% per the final look, both figures down from the first estimate.  This followed a revised 1.1% contraction in July-September, according to the Cabinet Office.

January household consumption was off 0.3% year-over-year, while February producer prices rose 8.2%, though this is down from 9.5% prior.

Street Bytes

--At the end of the week, the Dow Jones lost 4.4% to 31909, while the S&P 500 fell 4.6% for its worst week since September, and Nasdaq tumbled 4.7%.

Now we wait to see what news comes out on the SVB front over the weekend, and next week’s critical inflation numbers.

--U.S. Treasury Yields

6-mo. 5.05%  2-yr. 4.58%  10-yr. 3.70%  30-yr. 3.71%

The impact of the flight to safety was ginormous.  The yield on the 2-year hit 5.07%, while the 10-year was 3.97% (it went higher for a spell, above 4.00%), which resulted in the largest spread between the 2- and 10-year since 1981, while the 2-year yield was the highest since 2007.

And then you can see what happened with the chaos created by SVB.

Eurobond yields also fell bigly, the German 10-year at 2.50% vs. 2.71% last Friday.

--The U.S. budget deficit for February was $262.43 billion, in line with expectations and larger than the $216.59 billion budget deficit of a year earlier.

For the first five months of the fiscal year that began Oct. 1, the deficit totaled $722.63 billion, compared with the $475.58 billion gap in the same period a year earlier.

--Sen. Elizabeth Warren (D-Mass.) was one of the Senate Banking committee members grilling Fed Chair Jerome Powell, and she said the Fed expects the unemployment rate to rise from 3.4%, a 54-year low, to 4.6% by the end of the year, and that this would translate to 2 million job losses.

“You claim the only solution (to inflation) is to lay off workers,” she said. “It’s hurting working people badly.”

Powell shot back, “Will people be better off if we just walk away from our job and inflation remains 5, 6%?”

“Even 4.5% unemployment,” he added, “is better than most of the time of the last 75 years.”

Amen.

--At a major petroleum industry conference this week, executives cited the stagnation in shale, saying it signaled a return to more dependence on foreign energy sources and more challenging times ahead for major U.S. companies, after most of them posted record earnings last year.

“The world is going back to a world that we had in the ‘70s and the ‘80s,” said ConocoPhillips CEO Ryan Lance, during a panel at the conference. He warned that OPEC would soon supply more of the world’s oil.

Oil production from the best 10% of wells drilled in the Delaware portion of the Permian Basin was 15% lower last year, on average, than top 2017 wells, according to data from analytics firm FLOW Partners LLC.

This has big implications for the global oil market, which for years has relied on rapidly growing U.S. oil production to blunt the effects of supply disruptions and rising demand.  We need more exploration and technological advances.

Oil production in the U.S. rose from about 7.2 million barrels a day a decade ago to a high of around 13 million barrels a day before the pandemic.  But domestic output hasn’t caught up with pre-pandemic levels.

European natural gas prices rebounded amid a prolonged cold snap that could boost demand for heating and exacerbate an energy shortfall.  The UK grid operator was forced to call on a backup coal plant as an arctic blast moved across the country.  French LNG terminals were also shut amid widespread strikes on Tuesday.

In the U.S., the amount of nat gas flowing to Freeport LNG’s export plant in Texas was on track to drop, after a period of increasing flows.

Anyway, in the end, nat gas closed the week at $2.43, down from last week’s $3.00.  I was just a week early on my call the price would fall.

--As alluded to above, investors dumped shares of SVB Financial Group (parent of Silicon Valley Bank) to the tune of 60% on Thursday, after the tech-focused lender said it lost nearly $2 billion selling assets following a larger-than-expected decline in deposits.  The bank disclosed it sought to raise $2.25 billion in fresh capital by selling new shares, amid declining deposits from startups struggling with the venture capital funding drought.

SVB has been a crucial lender for early-stage businesses and was the banking partner for nearly half of U.S. venture-backed technology and healthcare companies that listed on stock markets in 2022.

The story then influenced bank shares across the board, with the four biggest U.S. banks losing $52 billion in market value.

Then Peter Thiel’s Founders Fund and other prominent VCs advised portfolio businesses to withdraw their money from SVB, even as the bank’s top executive urged calm.

So Friday we learned the capital raise had failed and there was a further rapid outflow in funds.

Then the Federal Deposit Insurance Corp. stepped in and seized the assets of the bank, marking the largest bank failure since Washington Mutual during the height of the 2008 financial crisis.

SVB had $209 billion in assets and $175.4 billion in deposits at the time of failure, the FDIC said in a statement.  It was unclear the percentage of deposits that were above the $250,000 insurance limit at the moment.  [CNBC said 87 percent, but I haven’t seen this in writing.]

Notably, the FDIC did not announce a buyer of Silicon Valley’s assets, which is typically when there’s an orderly wind down of a bank.  The FDIC also seized the bank’s assets in the middle of the business day, a sign of how dire the situation had become.

The shares in the bank were halted on Nasdaq before the opening Friday.  Last April, they traded at $593!

--China’s passenger car retail sales shrank almost 20% in the first two months of the year, 2.7 million passenger cars in January and February combined, according to the China Passenger Car Association, down from 3.3 million a year earlier.  The association partly attributed the drop to the ending of tax cuts on autos that boosted sales during the pandemic as well as the end of electric-vehicle subsidies.

Makers of plug-in hybrids and battery electric cars fared better, seeing sales rise 23% in January and February from the same period a year ago.

China’s bestselling passenger car model in wholesale, which includes exports, in February was BYD Co.’s 1211.  Four of the country’s top eight models sold last month were made by BYD, and two were made by Tesla.  Tesla’s Shanghai Gigafactory delivered just over 74,000 cars last month, and around 34,000 were sold in China.

A separate gauge of Chinese auto sales from the China Association of Automobile Manufacturers showed sales surged by 13.5% from a year earlier in February, but this was after January’s 35% plunge.  So taken together, similar to the first report.

--Speaking of Tesla, the company slashed prices of its Model S sedan and Model X SUV in the U.S. late Sunday night by $5,000 and $10,000 respectively as the company seeks to goose demand in the final month of the quarter.

For example, the Model S all-wheel drive is now $89,900, down 5.2% from $94,990, according to the company’s website. The Model S Plaid is now $109,990, down 4.3% from $114,990.

The latest moves come even though Tesla drastically cut prices in January in a broad bid to boost sales, thereby pissing off customers who purchased a car, say, in October or November.

--The Netherlands’ government on Wednesday said it plans new restrictions on exports of semiconductor technology to protect national security, joining the U.S. effort to curb chip exports to China.  The announcement marked the first concrete move by the Dutch, who oversee essential chipmaking technology, toward adopting rules urged by Washington to hobble China’s chipmaking industry and slow its military advances.

The U.S. in October imposed sweeping export restrictions on shipments of American chipmaking tools to China, but for the restrictions to be effective it needs other key suppliers in the Netherlands and Japan, who produce key chipmaking technology, to agree.

--The Biden administration sued on Tuesday to block JetBlue Airways’ $3.8 billion purchase of Spirit Airlines, saying the deal would reduce competition and drive up air fares for consumers.

The Justice Department said the tie-up would especially hurt cost-conscious travelers who depend on Spirit to find cheaper options than they can find on JetBlue and other airlines.

JetBlue and Spirit have anticipated this and will take it to court, arguing the combination simply makes them stronger and more of a competitor to the Big Four (American, United, Delta and Southwest).  The combined airline would have just 9% market share.  I agree with JetBlue.

--TSA checkpoint numbers vs. 2019

3/9…96 percent of 2019 levels
3/8…97
3/7…90
3/6…92
3/5…97
3/4…95
3/3…93
3/2…96

Suddenly, consistency in the numbers.

--FBI Director Christopher Wray told a U.S. Senate hearing on Wednesday that China’s government could use TikTok to control data on millions of American users.  Wray said the Chinese-owned app “screams” of security concerns.

Wray told a Senate Intelligence Committee hearing on worldwide threats to U.S. security that the Chinese could also use TikTok to control software on millions of devices and drive narratives to divide Americans over Taiwan or other issues.

“Yes, and I would make the point on that last one, in particular, that we’re not sure that we would see many of the outward signs of it happening if it was happening,” Wray said of concerns China could feed misinformation to users.

“This is a tool that is ultimately within the control of the Chinese government – and it, to me, it screams out with national security concerns,” the director said.

The White House backed legislation introduced on Tuesday by a dozen senators to give President Biden’s administration new powers to ban TikTok and other foreign-based technologies if they pose national security threats.

Other top intelligence officials including Director of National Intelligence Avril Haines, CIA Director William Burns and National Security Agency Director Paul Nakasone agreed at the hearing that TikTok posed a threat to national security.  Nakasone expressed concerns about TikTok’s data collection and potential to facilitate broad influence operations.

--The above-mentioned Silvergate Bank, an important player in the cryptocurrency world, plans to wind down operations and liquidate, the holding company announced Wednesday.

Silvergate Capital said in a release that its liquidation plan includes the full repayment of all deposits and that most deposit-related services will remain available during the process of shutting down.  Silvergate added it would delay the filling of its annual report and was assessing its ability to “continue as a going concern.”

The bank was founded in the late 1980s but began to grow rapidly when it started to focus on attracting cryptocurrency companies as customers.  At the time, many in the crypto industry found it difficult to find traditional players willing to offer them services.  As Bitcoin grew, the bank’s deposit base hit $14.3 billion by the end of 2021.

Then came the FTX fraud, with whom Silvergate had a banking relationship, and then Silvergate experienced a run on deposits in the fourth quarter, which dropped $8.1 billion to $3.8 billion.

While Silvergate was just a niche bank, most digital-assets firms had accounts there at one time.

Bitcoin, which had soared this year from $16,600 on Dec. 30 to over $25,000, has been sliding anew and late Friday afternoon was $19,800.

--Meta Platforms, the owner of Facebook and Instagram, is planning a fresh round of lay-offs and will cut thousands of employees as soon as this week.  This would come on top of a 13% reduction in November, some 11,000 workers in what was its first-ever major lay-off.

Meta is attempting to become a more efficient organization.

--Amazon announced last weekend that it was pausing construction of its second headquarters in Virginia following the biggest round of layoffs in the company’s history and its shifting plans around remote work.

The Seattle-based company is delaying the beginning of construction of PenPlace, the second phase of its headquarters development in northern Virginia (Arlington), the company said in a statement.  Amazon has already hired more than 8,000 employees and will welcome them to the Met Park campus, the first phase of development, when it opens this June.  Met Park can accommodate more than 14,000 employees, thus the shift on phase two.

--Oracle Corp. saw its shares fall after the software company posted slightly worse-than-expected revenue results for its latest quarter.

For its fiscal third quarter, Oracle posted revenue of $12.4 billion, up 18% from a year ago, falling slightly short of the $12.43 billion consensus estimate.  Adjusted earnings per share came in at $1.22, above expectations for $1.20.

Cloud services and license support sales gained 17% to $8.92 billion, while the cloud and on-premise license segment was flat at $1.29 billion.

The company did offer guidance for the current quarter that was better than estimates.

--Dick’s Sporting Goods on Tuesday beat analysts’ expectations for its fourth-quarter earnings and revenue.  Same-store sales increased 5.3%, more than double estimates of 2.1%. The company posted full-year guidance for 2023 that was also above what analysts had anticipated.  The company’s shares surged 11% in Tuesday trading.

The sporting goods retailer’s performance has remained resilient in the face of an inflationary macroenvironment industrywide inventory struggle.  It said Tuesday that even amid shaky consumer demand across the sector, its shoppers continued buying.

CEO Lauren Hobart said shoppers are now starting to see sports and fitness products “more as necessities than discretionary.”

Dick’s now anticipates full-year earnings per share between $12.90 and $13.80, up from $10.78 for fiscal 2022. Analysts were looking for $12 for fiscal 2023.

It expects same-store sales growth for the year to be flat to up 2%.

For the quarter ended Jan. 28, revenue was $3.60 billion vs. $3.45 billion expected.  The company posted net income of $236 million, about 32% lower than the $346 million it reported a year earlier.

--Campbell Soup Co. raised its annual sales forecast on Wednesday after its quarterly results topped Wall Street estimates, powered by higher prices, improved supply and strong demand for packaged meals and snacks.

While inflation has strained household budgets, Americans are still snacking on Campbell’s cookies and salty snacks while a continued preference for cooking at home bolstered demand for its ready-to-eat meals.  Consumers were turning to Campbell’s products as a means to stretch their food budgets in the tough economic environment, CEO Mark Clouse said. A recovery in supply chains also helped Campbell put more products on store shelves.

Fiscal second-quarter sales rose 12% to $2.49 billion, above the Street’s forecast of $2.44 billion.  Organic sales in Campbell’s snacks division, which represents half of its portfolio, jumped 15% in the quarter, fueled by strong demand for brands including Goldfish crackers, Pepperidge Farm cookies and Kettle Brand potato chips.  The Meals & Beverages unit, home to Campbell’s soups, Prego Pasta sauce and Swanson broth, saw sales rise 11%.

Campbell’s expects fiscal 2023 net sales to rise between 8.5% and 10%, slightly ahead of expectations.

--Adidas has $1.3 billion in Yeezy (Kanye West, Ye, A-hole) sneakers and doesn’t know what to do with them.  They are stored in warehouses around the world, a reminder of the relationship that once existed between Kanye and Adidas.  Since the first Yeezy Boost 750 shoe dropped in February 2015, his Yeezy brand became a defining force in the sportwear industry and an incredibly lucrative part of Adidas.

But that all ended last October after a string of antisemitic remarks by West forced Adidas to terminate the deal.

Adidas has a new CEO, Bjorn Gulden, and he’s trying to steady the company.  Last year sales in China fell 35% due to the extended lockdown to curb Covid, and the decision to pull out of Russia after Putin’s invasion of Ukraine.  The company is also losing market share to Nike and other rivals.

Gulden said the Yeezy shoes likely won’t be destroyed and could be donated in some fashion.

Overall, the German sportswear maker’s revenue increased 6% last year to $23.7 billion, while its net profit fell 83% to $266 million.  In the fourth quarter, revenue growth almost ground to a halt and the company posted a $506 million loss.

Adidas said revenue would decline by a single-digit percentage amount in 2023 as it aims for a reset under Gulden, who took charge in January.

--SiriusXM Holdings Inc. on Monday said it would lay off 8% of its workforce, or about 475 employees, as the satellite radio firm takes a hit from slow subscriber growth.  Weak auto sales also hit the radio operator’s subscriber base.

As of Dec. 31, 2022, SiriusXM had 5,869 full-time and part-time employees.  “Today’s decision to reduce our workforce was required for us to maintain a sustainably profitable company,” CEO Jennifer Witz said in a letter to staff.  The layoffs will impact nearly all departments.  In January, music streaming platform Spotify Technology also cut its workforce by 6%.

I am a huge fan of SiriusXM and don’t use it enough when I’m at home.  The music selections are outstanding and on any long trip you can stay plugged in with the news.  But last month I was working on a new car lease and demanded it be a Honda with Sirius installed like all my other Hondas over the years, and the salesman said most of the new models have you obtaining Sirius through plugging in your phone, which is the last thing I want to do, so I reupped my lease on my existing car for the first time.  That is indeed a real problem for Sirius.

--Just weeks after JPMorgan Chase & Co. defended Jes Staley against accusations he knew about Jeffrey Epstein’s sex crimes, the bank is accusing the former senior executive of deception – blaming him for its dealings with Epstein and seeking to recoup eight years of compensation, over $80 million.

The firm’s sudden turn against its forming private banking chief – who went on to run Barclays PLC – unfolded Wednesday in federal court in Manhattan; JPM accusing Staley of concealing an “inappropriate relationship” with Epstein and vouching for the sex offender’s character to keep him as a client.

“Staley’s act of disloyalty occurred repeatedly, lasted for years, and persisted despite numerous opportunities to correct them,” JPMorgan wrote.

The bank noted that one of Epstein’s alleged victims described “a powerful financial executive” who used aggressive force in a sexual assault of her.  “Upon information and belief, Staley is this person,” the bank said.

Staley has consistently denied knowledge of Epstein’s abuse.

Foreign Affairs, Part II

China: Last weekend, we had the opening of the yearly meeting of the National People’s Congress (aka “Two Sessions”), a mostly ceremonial body assembled to approve government reports and, this year, a new slate of top-level appointments.

And the first thing the NPC did was set a modest target for economic growth this year of around 5%.  China grew just 3% last year, one of its worst showings in decades, squeezed by three years of Covid-19 restrictions, a crisis in its vast property sector, a crackdown on private enterprise and weakening demand for Chinese exports.

Outgoing Premier Li Keqiang emphasized the need for economic stability and expanding consumption.

Many had expected China to set a higher growth target, as high as 6%.

China said it will boost its defense spending by 7.2% this year, the fastest pace in four years, and it will aim for “peaceful reunification” with Taiwan, Li Keqiang said.

Li and a slate of more reform-oriented economic policy officials are retiring during the Congress, making way for loyalists of President Xi Jinping.  Former Shanghai party chief Li Qiang, a longtime Xi ally, will be the new premier.

Among Xi’s comments on the week at various panels, in a meeting with the People’s Liberation Army delegation, Xi said China needed to improve its “integrated strategic capabilities” to fulfill China’s goal of national rejuvenation and building a world-class army.

“[Whether we can] implement this policy well…has profound significance in our building of a modern socialist country, pushing forward our dream of national rejuvenation…and accelerating the modernization of our army as a world-class armed force,” Xi was quoted by state broadcaster CCTV as saying.

In a speech Monday to Communist Party delegates and business leaders, Xi accused the United States of “containment and suppression” of China’s potential, and vowed to fight back. 

Over the last five years, “Western countries led by the United States have implemented all-round containment,” that is, “containment and suppression of China, which has brought unprecedented severe challenges to my country’s development,” Xi said, and referenced “increasing downward pressure on the economy.” 

“In the coming period, the risks and challenges we face will only increase and become more severe,” Xi predicted.  “Only when all the people think in one place, work hard in one place, help each other in the same boat, unite as one, dare to fight, and be good at fighting, can they continue to win new and greater victories.”

New Foreign Minister Qin Gang (previously China’s ambassador to the U.S.), in his first press conference, said:

“Containment and suppression will not make America great, [and] it will not stop the rejuvenation of China.  The United States’ perception and views of China are seriously distorted,” warning, “If the United States does not hit the brakes but continues to speed down the wrong path, no amount of guardrails can prevent derailing, and there will surely be conflict and confrontation.”

“Such competition is a reckless gamble, with the stakes being the fundamental interests of the two peoples and even the future of humanity,” Qin said.

Qin also claimed China’s relationship with Russia is a model for other nations.  “China and Russia have found a path of major country relations featuring strategic trust and good neighborliness, setting a good example for international relations,” he said.  And then, Qin claimed an “invisible hand” was pushing for an escalation of Russia’s Ukraine invasion because that would “serve certain geopolitical agendas,” he said, without elaborating.

Qin avoided any mention of democracy as he conflated Ukraine’s defense against Russia with Taiwan’s desire to maintain its independence.  “Why does the U.S. ask China not to provide weapons to Russia, while it keeps selling arms to Taiwan?” he asked   “The U.S. has unshirkable responsibility for causing the Taiwan question” and for “disrespecting China’s sovereignty and territorial integrity,” said Qin.  And then he shared more disinformation on alleged U.S. efforts to destabilize Taiwan, asking his audience rhetorically, “Why does the U.S. keep on professing the maintenance of regional peace and stability, while covertly formulating a ‘plan for the destruction of Taiwan?’”

“If the United States truly expects a peaceful Taiwan Strait, it should stop containing China by exploiting the Taiwan question,” he said.  And the U.S. should “return to the fundamentals of the one-China principle, honor its political commitment to China, and unequivocally oppose and forestall Taiwan independence,” said Qin.

Qin told reporters that he rejected U.S. claims that Beijing was considering the supply of lethal weapons to Moscow.

“Between war and peace, we choose peace. Between sanctions and dialogue, we choose dialogue. Between fanning the flames and lowering the temperature, we choose the latter.  China did not create the crisis, it is not a party to the crisis and has not provided weapons to either side of the conflict,” he said.

The rubber-stamp parliament unanimously approved a precedent-breaking third five-year term on Friday for Xi.  Three thousand or so voted ‘for,’ none against, there being no opponent.

In response to all of China’s warnings this week, White House spokesman John Kirby said, “We seek a strategic competition with China. We do not seek conflict.  We aim to compete and we aim to win that competition with China but we absolutely want to keep it at that level.”

Taiwan’s President Tsai Ing-wen will make a stop in the U.S. next month, transiting through New York and Los Angeles on her way to and from a visit to the island’s Central American allies of Guatemala and Belize. She will reportedly meet with House Speaker McCarthy in California, which Beijing has warned would violate its sovereignty on the grounds that Taiwan is a part of China, as well as deliver a speech at the Ronald Reagan Presidential Library in Simi Valley during the visit.

Beijing warned that the U.S. should not “underestimate the strong determination of the Chinese government and people to safeguard national sovereignty and territorial integrity.”

On the Covid origins front, U.S. Director of National Intelligence Avril Haines said during a hearing of the Senate Intelligence Committee, “China has not fully cooperated, and that is a key critical gap that would help us understand what, exactly, happened.”

Ms. Haines confirmed the Energy Department had slightly changed its determination, adding that its conclusion stemmed from different factors than those that had informed the FBI.

“So you can see how challenging this has been across the community,” she said.

To which Sen. Susan Collins (R-ME) said the weight of the circumstantial evidence pointed to an accidental lab leak.

“I just don’t understand why you continue to maintain on behalf of the intelligence community that these are two equally plausible explanations,” said Collins.  “They simply are not.”

North Korea: Pyongyang warned the U.S. that shooting down its test missiles is akin to a declaration of war. “The Pacific Ocean does not belong to the dominion of the U.S. or Japan,” Kim Yo Jong, sister of Kim Jong Un said Tuesday.  “We keep our eye on the restless military moves by the U.S. forces and the South Korean puppet military and are always on standby to take appropriate, quick and overwhelming action at any time according to our judgement,” she said in a statement.

The U.S. and its allies have never shot down North Korean ballistic missiles, which are banned by the UN Security Council.

North Korea launched a short-range missile toward the Yellow Sea early Thursday.  The U.S. Indo-Pacific Command said, “We are aware of the ballistic missile launch and are consulting closely with our allies and partners.  While we have assessed that this event does not pose an immediate threat to U.S. personnel or territory, or to our allies, the missile launch highlights the destabilizing impact of the DPRK’s unlawful WMD and ballistic missile programs,” it said, referring to weapons of mass destruction.

Friday, Kim Jong Un ordered the military to intensify drills to deter and respond to a “real war” if necessary, state media said, after the leader oversaw a fire assault drill that it said proved the country’s capabilities.  Kim was accompanied by his young daughter who has appeared recently in a series of major events.

The U.S. and South Korea begin joint exercises on Monday that are scheduled to go through March 23.  Pyongyang will act anew in some fashion.

Iran: The government arrested several people it said were linked to a wave of school poisonings and accused some of connections to “foreign-based dissident media” and recent riots, according to an Interior Ministry statement shared by state media on Tuesday.

Over 1,000 girls have fallen ill after being poisoned since November, with some politicians blaming religious groups opposed to girls’ education.

“Three members of a team of four people arrested have a history of being involved in recent riots and their connection to foreign-based dissident media has been ascertained,” the statement said without elaborating.  Total bulls---.

On Monday, Iran’s supreme leader said that poisoning schoolgirls was an “unforgivable” crime that should be punished by death if deliberate, amid public anger over a wave of suspected attacks in schools around the country.

Meanwhile, on the nuclear front, the International Atomic Energy Agency’s chief watchdog, Rafael Grossi, was in Tehran seeking concessions and he had to walk back some comments he made days earlier.

Iran had agreed with the IAEA to come clean on a long-stalled IAEA inquiry into uranium particles found at three undeclared sites in Iran.  Saturday, Grossi told a news conference that the two side had agreed to re-install all extra monitoring equipment, such as surveillance cameras, at nuclear sites that was put in place under Iran’s 2015 nuclear deal with major powers, but then removed last year as the deal unraveled following the U.S. withdrawal in 2018.

“We will have to discuss…this, how do we do it,” Grossi then said on Monday, conceding that this and other issues would largely hinge on future technical talks.

So not exactly a breakthrough as had seemed to be the case Saturday.

Separately, Iran’ Judiciary Chief said on Monday that women violating the Islamic dress code will be punished.

Then, out of nowhere, Saudi Arabia and Iran announced today that they were resuming diplomatic relations in what observers call both a “breakthrough” and a concerning development from the perspective of the U.S., which had nothing to do with the negotiations, which took place in Beijing!

Iran and Saudi Arabia are China’s major oil providers.  The deal was apparently brokered in just four days, according to Reuters.

As reported by the Wall Street Journal: “Iran and Saudi Arabia will reopen their embassies and missions on each other’s soil within two months, and both affirmed noninterference in the internal affairs of other states.”

According to the Associated Press, possible points of divergence include “the turmoil now tearing at Lebanon and in the rebuilding of Iraq after decades of war.”

Saudi Arabia cut ties with Iran in 2016 after its embassy in Tehran was stormed during a dispute between the two countries over Riyadh’s execution of a Shiite Muslim cleric.

The White House looks so bad in all this, and you can imagine what Israel is thinking.

Israel: Israeli forces raided a refugee camp in the West Bank city of Jenin on Tuesday, killing at least six Palestinians, including a Hamas gunman suspected of fatally shooting two brothers from a Jewish settlement near the village of Huwara.

Since the beginning of the year, Israeli forces have killed more than 70 Palestinians, including militant fighters and civilians, while in the same period, Palestinians have killed 13 Israelis and one Ukrainian woman in a series of apparently uncoordinated attacks.

As for the government’s push to effectively abolish the nation’s independent judiciary, protests against same continue, and no doubt will on Saturday.  This week demonstrators blocked the road to Ben Gurion Airport.

Turkey: Elections are still slated for May 14, despite the devastating earthquakes, and President Erdogan’s opponent will be Kemal Kilicdaroglu, a center-leftist.  The last leading threat to Erdogan’s two-decade rule was given a prison sentence in December for allegedly insulting public officials.

Despite Erdogan’s poor handling of the earthquake aftermath, polls suggest that the presidential and parliamentary votes will be tight, with the opposition bloc running slightly ahead.  But Kilicdaroglu doesn’t have the campaigning skills Erdogan has. 

Erdogan said his campaign would focus on recovery after the earthquakes and would not use any music.  All parliamentary candidates from his AK Party will have to make a “generous” donation to the earthquake fund of the Disaster and Emergency Management Authority, he said.

Voters who were displaced would retain their voting rights and vote in the cities where they currently reside.  [What a mess this will be.]

Erdogan said 47,000 people had died in Turkey due to the quakes, bringing the overall toll, including those killed in Syria to more than 53,000.  More than 600,000 homes collapsed or were severely damaged across the region, according to official data.

Georgia: The ruling party said on Thursday it was dropping a bill on “foreign agents” after two nights of violent protests against what opponents said was a Russian-inspired authoritarian shift that endangered hopes of the country joining the European Union.

The Georgian Dream ruling party said in a statement it would “unconditionally withdraw the bill we supported without any reservations.”

The bill would have required Georgian organizations receiving more than 20 percent of their funding from abroad to register as “foreign agents” or face fines.  Georgian Dream had previously said the law was necessary to unmask critics of the Georgian Orthodox Church, one of the country’s most powerful institutions.

The move had drawn comparisons to similar laws in Hungary and Russia, and prompted huge demonstrations in the capital, Tbilisi.

The European Union’s delegation to Georgia praised the decision to withdraw the bill.

Random Musings

--Presidential approval ratings….

Gallup: 42% approve of Biden’s job performance, 54% disapprove; 40% of independents approve (Feb. 1-23).

Rasmussen: 50% approve, 49% disapprove (Mar. 10), highest approval rating since June 2021.

--President Biden unveiled his 2024 budget proposal and I’m not going to waste any time on it because like all budgets, especially in a divided Congress, it’s dead-on-arrival.

But it is a political statement and the proposal is filled with tax increases on the rich, such as a 25% minimum tax on the “full income” of Americans with more than $100 million in wealth, which means, as the Wall Street Journal points out, taxing the increase in the value of assets even if no income is realized.

And the corporate tax rate would be hiked to 28% from 21%, for starters.

Bottom line, from the Journal:

“All of these tax increases are projected to raise revenue as a share of GDP to a new higher level of 20.1% of GDP in 2033, which is far above the 50-year average of 17.4%....

“Meanwhile, spending would climb to 25.2% of GDP, compared to a 50-year average of 21%. That’s owing to rising interest costs on federal debt and Mr. Biden’s proposals for a cavalcade of entitlements such as universal pre-K, child care, paid family leave, and housing.

“Even with all the taxes, deficits over the next decade would total $17 trillion, and debt held by the public as a share of GDP would rise to 109.8% in 2033 from 97% last year.  Mr. Biden’s budget is a recipe for an economically and militarily weaker America, but at least he’s warning voters of his intentions – unlike in 2020.”

But now the negotiations start and none of this really matters until we see the finished product.  Like understand that while the Biden administration will tout its increasing defense spending by $26 billion to $842 billion, the 3.2% increase over 2023 is far less than the current rate of inflation.

--Senate Minority Leader Mitch McConnell was still in the hospital at week’s end after tripping at a Washington hotel during a private dinner and suffering a concussion, according to his staff.

At age 81, it’s a reminder of the fragility of the likes of Joe Biden.

--New Hampshire Gov. Chris Sununu (R), appearing on NBC’s “Meet the Press”:

“As far as former President Trump…obviously he’s in the race.  He’s not going to be the nominee. That’s just not going to happen.

“I think there’s a lot of opportunity to bring forward what the Republican Party – not what we were, not yesterday’s leadership or yesterday’s story, or crying about what happened in November of ’22 – but what we’re going to bring to the table and get done tomorrow, and that’s what America is looking for,” Sununu said.

“And so I’m really confident that whoever comes out of the Republican nomination process is going to lead this country and will be able to deliver in ‘24, and I’ll back them,” he continued.

Sununu is running, wagering on taking his home state and building momentum from there.  At least that is my educated guess.

One who many thought would run, former Maryland Gov. Larry Hogan, said he would not.

In a statement, Hogan said the party “must move on from Donald Trump” and that “the stakes are too high for me to risk being part of another multicar pileup that could help Mr. Trump recapture the nomination.”

Hogan added that after eight years as governor, “I have no desire to put my family through another grueling campaign just for experience.”

In a New York Times op-ed, Hogan also seemed to criticize the infrastructure that enabled Trump’s rise to power.  “For too long, Republican voters have been denied a real debate about what our party stands for beyond loyalty to Mr. Trump.  A cult of personality is no substitute for a party of principle,” he wrote.

--Meanwhile, Florida Gov. Ron DeSantis is heading to Iowa, with Trump to follow.  In a new poll of potential Sunshine State Republican presidential primary voters, DeSantis scored an impressive 52% to 27% lead over Trump among registered Republicans, with Nikki Haley and Mike Pence far behind in the low single digits.

In a hypothetical matchup between DeSantis and Trump, DeSantis clobbers Trump, 59 to 28.  The poll was conducted by the University of North Florida.

--Tucker Carlson wrote “I hate him passionately” in newly released text messages about former president Trump as bipartisan outrage continued to build over Carlson’s effort to whitewash the Jan. 6 attack.

Even as he cozied up to Trump in public, the messages show the Fox News host actually despises Trump and considers him to be an epic failure, at least when he’s not on the air.

“We are very, very close to being able to ignore Trump most nights,” Carlson said in a text on Jan. 4, 2021, as Trump supporters geared up for the attack on the Capitol.  “I truly can’t wait.”

“I hate him passionately… What he’s good at is destroying things.  He’s the undisputed world champion of that. He could easily destroy us if we play it wrong,” Schmucker said.

In another text, Carlson conceded that conservative figures were “all pretending we’ve got a lot to show for” Trump’s tumultuous four years in the White House.

“Admitting what a disaster it’s been is too tough to digest,” he wrote.  “But come on. There isn’t really an upside to Trump.”

All of the new texts were released in court filings related to the $1.6 billion defamation suit Fox is facing from voting machine maker Dominion that claims it knowingly spouted Trump’s false claims that the 2020 presidential election was rigged.

Fox News accused Dominion of dishonestly portraying key figures’ internal communications.

“Thanks to today’s filings, Dominion has been caught red handed using more distortions and misinformation in their PR campaign to smear Fox News and trample on free speech and freedom of the press,” the statement said.  “We already know they will say and do anything to try to win this case, but to twist and even misattribute quotes to the highest levels of our company is truly beyond the pale.”

Dominion replied: “The emails, texts, and deposition testimony speak for themselves. We welcome all scrutiny of our evidence because it all leads to the same place – Fox knowingly spread lies causing enormous damage to an American company.”

But even as the texts emerged, Carlson, Tuesday, went ahead with a second night of airing exclusive security footage from Jan. 6 that he asserts proves the attack on Congress was actually a peaceful protest.

Lawmakers from both sides of the aisle fact-checked his bogus claims, but Carlson blamed Democrats for displaying “hysteria, overstatement, crazed hyperbole, red-in-the-face anger” over his use of the footage that showed some peaceful moments during the hours-long insurrection.

He didn’t address the text messages.  Trump also ignored the texts.

Instead, Trump demanded the release of convicted rioters, many of whom admitted attacking police officers, and blasted the congressional Jan. 6 committee that “knowingly refused to show the videos that mattered.”

Sen. Mitch McConnell said he wanted to align himself with the letter sent to the U.S. Capitol Police force by Capitol Police Chief Thomas Manger, who denounced Carlson for spreading “offensive and misleading conclusions” about the insurrection on Jan. 6, including a “disturbing accusation” that Officer Brian Sicknick’s death had nothing to do with the riot.

McConnell said: “It was a mistake, in my view, for Fox News to depict this in a way that’s completely at variance with what our chief law enforcement official here at the Capitol thinks.”

Sen Thom Tillis (R-N.C.) called Carlson’s claim that Jan. 6 was “peaceful chaos” “bullshit.”

“I was here.  I was down there, and I saw maybe a few tourists, a few people who got caught up in things,” he added.  “But when you see police barricades breached, when you see police officers assaulted, all of that…if you were just a tourist you should’ve probably lined up at the visitors’ center and came in on an orderly basis.”

Tillis said Carlson’s depiction was “inexcusable.”

Republican Sen. Kevin Cramer (N.D.) said he firmly rejected Carlson’s portrayal of that day as “some rowdy peaceful protest of Boy Scouts.”

“I think that breaking through glass windows and doors to get into the United States Capitol against the orders of police is a crime.  I think particularly when you come into the chambers, when you start opening the members’ desks, when you stand up in their balcony – to somehow put that in the same category as, you know, permitted peaceful protest is just a lie,” Cramer said.  “I think it doesn’t do any good for the narrative.”

Sen. Mitt Romney (R-Utah) said it’s “really sad to see Tucker Carlson go off the rails like that,” saying he’s “joining a range of shock jocks that are disappointing America and feeding falsehoods.”

“It’s a very dangerous thing to do,” Romney added, “to suggest that attacking the Capitol of the United States is in any way acceptable and it’s anything other than a serious crime, against democracy and our country…trying to normalize that behavior is dangerous and disgusting.”

--As for Rupert Murdoch, Fox Corp. chairman, in documents released Tuesday, Murdoch sought to distance himself from the former president, saying he didn’t speak to him directly on election night and adding, “I was not close to him.”

While discussing during his deposition his correspondence with his friend Saad Mohseni, the Afghan media mogul, Murdoch was asked about an email in which he said it would be “ridiculous” for state legislatures to overturn election results.  “There’d be riots like never before,” he wrote, according to the account in the deposition.  He wrote that both Mr. Trump and Rudy Giuliani, who had been pushing a narrative of voter fraud, were “both increasingly mad.”  He added: “The real danger is what he might do as president.”

--Donald Trump closed out CPAC, the annual conference of conservative leaders, by airing more grievances and promising only he can save America from becoming a “filthy Communist nightmare” by getting rid of the “deep state” and overturning President Biden’s policies if he gets a second chance.

“If you put me back in the White House, we will be a free nation. Their reign will be over. …We’re no longer a free country.  We don’t have a free press.  We don’t have a free anything.”

“I will totally obliterate the deep state,” Trump said.  “I will fire the unelected bureaucrats and shadow forces – sick – these are sick people.”

Trump called out former House speaker Paul Ryan, Karl Rove and Jeb Bush, whom he grouped into the category of “freaks, neocons, open-border zealots and fools.”

Mitch McConnell is a “China-loving politician.”

Manhattan DA Alvin Bragg was bashed for being soft on crime.  Bragg’s office is investigating Trump’s hush-money payments to porn star Stormy Daniels after their reputed affair.

“This racist DA is being pushed by radical left Democrats, the fake news media and the department of injustice to bring charges against me for a now ancient no-affair story of Stormy ‘Horse Face’ Daniels.  No affair, no affair. Where there is no crime anyway,” he said of Bragg, who is black.

Georgia prosecutor Fani Willis, also black, is investigating Trump for trying to overturn the will of her state’s voters.

“Then you have the racist DA from Atlanta,” Trump said of Willis.  “She has her kangaroo court focused on a perfect phone call that I made.”

Sure was perfect…the perfect shakedown, until it wasn’t.

Trump said an indictment would not stop his presidential campaign, and he vowed to stop U.S. involvement in foreign wars, ridiculing Biden’s withdrawal from Afghanistan (deserved), while apparently forgetting it was Trump who wanted a full withdrawal from Afghanistan…before he left office…only to be convinced by the generals to keep a residual force.

Speaking for one-hour, 45-minutes (much of which I watched), and before a not-quite-full convention hall, Trump painted a bleak picture of the current state of the world, describing his run for president as the “final battle.”

“Either they win or we win.  And if they win, we no longer have a country,” Trump said.

Manhattan prosecutors have signaled to Donald Trump that he could face criminal charges related to the Stormy Daniels case and he’s been invited to testify before the grand jury next week.

Trump’s former personal lawyer, Michael Cohen, was sentenced to three years in prison for orchestrating hush payments to Daniels and another woman, former Playboy model Karen McDougal, prior to the 2016 presidential election in exchange for not discussing their encounters with Trump.

Tom Nichols / The Atlantic

“This is a former president whose (CPAC) pitch included ‘I am your retribution.’  Retribution for what, exactly, was left unsaid, but revenge for being turned out of office is likely high on the list…. If Trump wins again, there will be a flurry of pardons, the same cast of miscreants will return to Pennsylvania Avenue, and, this time, they won’t even pretend to care about the Constitution or the rule of law….

“Trump also reminded us that he is an existential menace to our national security. He reveled in a story he first told last spring – almost certainly a fiction – about how he informed a meeting of NATO leaders that he would let the Russians roll over them if they weren’t paid up.  (Trump still believes NATO is a protection racket.)  He then fantasized about how easily a Russian attack could destroy NATO’s headquarters.

“We’ve all catalogued this kind of Trumpian weirdness many times, and I still feel pity for the fact-checkers who try to keep up with him.  But I wonder if there is any point.  By now it should be clear that the people listening to Trump don’t care about facts, or even about policy or politics.  They enjoy the show, and they want it back on TV for another four years.  And this is a problem not with Trump but with the voters.

“It is long past time to admit that support for Trump, after all that we now know, is a moral failing.  As I wrote in a recent book, there is such a thing as being a bad citizen in a democracy, and we should cease the pretend arguments about policy – remember, the 2020 GOP convention didn’t even bother with a platform. Instead, anyone who cares about the health of American democracy, of any party or political belief, should say clearly that to applaud Trump’s fantasies and threats at CPAC is to show an utter lack of civic character….

“The man who bellowed and sweated his way through almost two hours of authoritarian madness is still the same man who instigated an attack on our Capitol (and on his own vice president), the man who hands our allies to Russia if they’re behind on the vig, the man who thinks a free press is his enemy, the man who tried to wave away a pandemic as thousands and thousands of Americans died….

“There was a time when we forced people out of public life for offenses far less than Donald Trump’s violent and seditious corruption.  We were a better country for it, and returning to that better time starts with media outlets holding elected Republicans to account for Trump’s statements – but also with each of us refusing to accept rationalizations and equivocation from even our friends and family.  I said in 2016 that the Trump campaign was a test of character, and that millions of us were failing it. The stakes are even clearer and steeper now; we cannot fail this test again.”

For my part, I’ve long said I don’t suffer fools gladly.

Trump won the meaningless CPAC straw poll, 62% to 20% for Ron DeSantis, who smartly didn’t attend.

--David French, in a New York Times op-ed, talked about Rep. Marjorie Taylor Greene’s call for a “national divorce,” which is an absurd idea.  But at the same time:

“It could also happen.  It’s not likely, but it’s possible, and we should take that possibility seriously.”

On the surface it makes no sense, French pointing out his home state, Tennessee, elected Donald Trump by 23 percentage points, but Davidson County, home of Nashville, and Shelby County, home of Memphis, voted for Joe Biden by 32 and 30 points, respectively.

“But why should we think that reason will win the day?  I’m haunted by James McPherson’s account of the prewar period in his seminal work, ‘Battle Cry of Freedom: The Civil War Era.’  Describing the South in the run-up to the secession and war, he says it was possessed by an ‘unreasoning fury.’  The immediate cause was Northern celebration of John Brown, the abolitionist who attempted to provoke a slave rebellion by seizing the federal arsenal at Harper’s Ferry.

“In McPherson’s account, Northern support for Brown’s cause ‘provoked a paroxysm of anger more intense than the original reaction to the raid.’  Southern paranoia was so profound that Texas’ secession declaration even included claims that Northern ‘emissaries’ were distributing ‘poison’ to slaves for the purpose of killing white citizens.

“The South separated from the North and started a ruinous and futile war not because of calm deliberation, but rather because of hysteria and fear – including hysteria and fear whipped up by the partisan press.

“So my question is not ‘Is divorce reasonable?’ but rather, ‘Are we susceptible to the unreason that triggered war once before?’….

“Animosity is the enemy of American liberty. It is hard to muster the will to defend the rights of people you despise. But it’s also the ultimate enemy of American unity.  Hatred and fear are the foundation of ‘unreasoning fury,’ and the fury that divided us once before may well do so again.”

--Two of the four Americans who went missing on Friday in the Mexican northern border state of Tamaulipas have been found alive, and the other two were dead, the state governor said Tuesday.

One of the Americans was looking for a tummy tuck. But Tamaulipas is one of the most violent, gang-ridden states in Mexico.

The group responsible for the deaths, a faction of the Gulf Cartel, then issued a handwritten apology on a sheet of white paper.

“We have decided to hand over the people directly involved in the events who acted on their own initiative, showing a lack of discipline and acting against the rules that the CDG has always operated under, respecting the life and integrity of the innocent.”

CDG stands for Cartel del Golfo, or the Gulf Cartel, one of Mexico’s oldest drug-trafficking organizations, which has split into rival factions over the years.

Analysts said the message was a desperate attempt by the cartel to avoid a crackdown due to the attention it has attracted.

--A report from the Journal of the American Medical Association found that individuals who experience “long Covid” are at a higher risk for cardiovascular and other health issues, according to a new study.

The findings showed that the chance of patients dying was doubled in those who experienced lingering symptoms from the disease.

People with post-Covid-19 condition – also known as PCC – can experience symptoms for as long as two years after infection – meaning they’ve essentially had symptoms for as long as Covid has been around.

In the study, people with PCC were also found to be twice as likely to experience issues such as arrhythmia, stroke, heart failure and coronary artery disease.

--The number of lithium-ion battery fires, such as from e-bikes, has soared in New York City. From 2021 to 2022, the number of such blazes more than doubled, from 104 to 216, fire officials said.

In the first two months of 2023, there have been 22 such fires, causing 36 injuries and two deaths.

Our late Dr. Bortrum worked extensively on the first lithium batteries.  No doubt he’d have lots to say on the topic today as to the risks.  For good reason, there were showerheads in the hallways of Bell Labs.

--On the California weather front, the northern and central parts of the state are being hit by a dangerous new storm that is mostly rain, except for very high elevations, which presents major flood risks; the combination of rain and snowmelt.

Residents near Big Sur were told to stock up on enough supplies to last them at least two weeks as Highway 1 and other arteries are at major risk of landslides and mudslides.

Down in San Bernardino County, east of Los Angeles, which is still recovering from 7-feet of snowfall starting late February, the death toll has hit 13.  Only one of the 13 deaths was classified as weather-related, a car accident, and authorities are investigating only the deaths of people who weren’t under medical care or in a hospice, so it can take time to determine if the other 12 victims were storm-related.

--Across four decades of satellite observations, there has never been less ice around the continent of Antarctica than there was last week.

Sea ice helps to buffer the effect of storms on ice attached to the coast.  If it starts to disappear for longer, the increased wave action can weaken those floating ice shelves that themselves stabilize the massive ice sheets and glaciers behind them on the land.

And one such body is the vulnerable Thwaites glacier – known as the “doomsday glacier” because it holds enough water to raise sea levels by half a meter.

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Pray for the men and women of our armed forces…and all the fallen.

Pray for Ukraine.

God bless America.

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Gold $1872
Oil $76.55

Regular Gas: $3.47 (up 8 cents on the week); Diesel: $4.36 [$4.31 / $5.05 yr. ago]

Returns for the week 3/6-3/10

Dow Jones  -4.4%  [31909]
S&P 500  -4.6%  [3861]
S&P MidCap  -7.4%
Russell 2000  -8.1%
Nasdaq  -4.7%  [11138]

Returns for the period 1/1/23-3/10/23

Dow Jones  -3.7%
S&P 500  +0.6%
S&P MidCap  +0.9%
Russell 2000  +0.7%
Nasdaq  +6.4%

Bulls 45.2
Bears 24.7

Hang in there.

Brian Trumbore

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